What Is Passive Income and How Do I Get It?

September 9, 2016

Chances are, you’ve heard at least a few get rich quick stories. Some big payout that will set you free from working ever again and let you live a life of luxury. It’s why so many people play the lottery. Or fall for get-rich-quick scams. But, deep down, you know that these rich quick stories almost never happen in reality. Even if you did suddenly strike it rich, all the money in the world wouldn’t make you happy if that were all you were banking on.

The Real World

A more realistic and practical goal is developing passive income. As the name implies, passive income is an ongoing income stream doesn’t require ongoing work. Once its set up, it just keeps paying out.

Is this just another fantasy? Nope. Quick rich fantasies are all about crazy lots of money for no work. Passive income is all about working to acquire assets that will pay an ongoing income. The dream in quick rich fantasies is typically money buying happiness- which is impossible. Passive income is about meeting your income needs while giving you more freedom to pursue other dreams and passions. Building passive income isn’t easy. It means sacrificing time or money in the present. But it is liberating.

Passive Income From Real Estate

One popular form of (somewhat) passive income is renting out property. As long as you are also the property manager, this isn’t completely passive income because you will always have to deal with any issues that arise with the renters. Even if you do have a property manager, you will have to make decisions from time to time.

Passive Income From Intellectual Property

Another form of passive income is royalties. If you are the creative type, and you write a book, record an album, or make some other kind of reproducible art, you earn a percent of every sale. You can even do this by selling stock-art on sites like istockphoto. The problem with royalties is that each individual income stream typically declines over time, meaning that you have to keep on writing or creating to maintain a viable income.

Passive Income From Investments

Investing is probably the most reliable form of passive income. I always recommend investing in index funds. To invest for passive income, you would pick a fund with a history of rising dividends. The more money you invest in the index fund, the more your dividend payments will be. When you stop investing in the index fund, your dividend payments will continue increasing over time, ideally keeping pace with inflation. The downside of investment income is that it typically has a smaller payout per dollar invested than in royalties and rental properties. But this is the price of being truly passive.

Don’t Get Greedy!

Even though you already know it, I’ll say it again: get-rich-quick schemes are fantasies. Don’t let greed drag you into throwing everything to a pipe dream. Stick with using your spare time and money to develop passive income.

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While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.